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Whilst the Personal Property Securities Act and the related registration process have been around since 1999 there are still a lot of SME business owners who are completely unaware of both the Act and the ramifications of non-registration should a liquidator or receiver be appointed to a customer’s company. A PPSR (Personal Property Security Registration) is your best insurance to establish ownership, in the event one of your customers goes into liquidation.
A PPSR in its most basic definition is a security over goods provided to a debtor. In the event of your debtor’s liquidation, your PPSR registration clearly highlights to a liquidator those assets (or funds acquired from the sales of those assets) which you have not yet received full payment for. Basic ROMPALA clauses only protect you before a liquidator is appointed. A PPSR is the only way to protect your financial interests and ranks you as a secured creditor. Here is the important bit – secured creditors are one of the first parties to be paid. In some cases, your secured item(s) will be returned to you, or the balance owing will be paid to you by the liquidator. Without a PPSR, your assets will be sold and any money recovered will be either paid to the preferential creditors, such as employees or the IRD, or divided equally between the unsecured creditors.
Your accountant is the professional you will most likely see each year when it comes to the administration of your business. However, it appears that accountants are passing responsibility to their client’s legal advisors because they either feel they are not competent to deal in PPSA matters or do not want to take on the potential risk of getting the registration process wrong. The reality is that SME business owners only consult with their lawyers when they have to.
Lodging a PPSR with the Companies Office is easy and cheap. For only $20, you can complete the registration yourself. Bear in mind that an incorrectly lodged PPSR will be easily overturned by a liquidator. All details provided must be accurate or the security can be voided in its entirety or lowered in its priority. Issues that can, and do frequently arise are with:
- Debtor’s company number
- Debtor’s name
- Incorrect entering of serial number
- Vague/broad/simply wrong descriptions of collateral
Engaging a professional who has in-depth experience of PPSRs to lodge the securities against your debtors gives you peace of mind that the best effort has been made to cover your exposure against the potential downfall of any of your customers.
At your annual meetings with your accountant, you should also be asking them about PPSR registrations that have been established against your business. Terms and conditions from your suppliers will often have a section dedicated to you giving them permission to load PPSRs against you. In the event of your business’ failure, it is important to know what you, as guarantor, are liable for. For $3, you or your accountant can have a list of all current registrations, including those which you may not be aware of.
At Corporate Restructuring Limited, we frequently see both sides of this story. We see small business owners who did not invest the time to secure their property. Liquidators are unable to return property to creditors as this would provide undue preference to those creditors. We also see PPSR holders who did not take due diligence when registering their security. Imperfect securities (those where the details are incorrect or insufficient) can be challenged and overturned by liquidators through the courts. Your business will be ranked only slightly higher than the unsecured creditors and the cost of registering your PPSR will be for little benefit, if any.
At Corporate Restructuring Limited, we are able to advise you on all aspects of the PPSR, including searching the register, review of your specific needs, the registering and maintenance of financing statements and of course, assisting with getting your property back should a liquidator or receiver be appointed. Please visit our contact us page if you require further assistance.
For additional reading and to search the register, the website is http://www.ppsr.govt.nz/.